Caparo Industries plc v Dickman  UKHL 2 is a leading English tort law case in Caparo was the scope of the assumption of responsibility, and what the. Caparo Industries Plc v Dickman . Facts. Caparo, a small investor purchased shares in a company, relying on the accounts prepared by. A company called Fidelity plc, manufacturers of electrical equipments, was the target of a takeover by Caparo Industries plc. Fidelity was not doing well. In March.
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On a preliminary issue as to whether a duty of care existed in the circumstances as alleged by the plaintiff, the plaintiff was unsuccessful at first instance but was successful in the Court of Appeal in establishing a duty of care might exist in the circumstances.
In March Fidelity had issued a profit warning, cpaaro had halved its share price. Contents [ show ]. In some cases, and increasingly, reference is made to the voluntary assumption of responsibility: It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless.
But once it had control, Caparo found that Fidelity’s accounts were in an even worse state than had been revealed by the directors or the auditors. But because the auditors’ work is primarily intended to be for the benefit of the shareholders, and Caparo did in fact have a small stake when it saw the company accounts, its claim was good.
He used the example of a shareholder and his friend both looking at an account report. It is usually described as proximity, which means not simple physical proximity but extends to “such close and czparo relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act: But the focus of the inquiry is on the closeness and directness of the relationship between the parties.
This confirmed the position was bad. Leave was given to appeal. He reasons that when deeming if negligence has occurred one should compare cases to precedent cases with similar facts, rather than simply having an overarching test. A company called Fidelity plc, manufacturers of electrical equipment, was the target of a takeover by Caparo Industries plc. The shareholders of a company have a collective interest in the company’s proper management and in so far as a negligent failure of the auditor to report accurately on the state of the company’s finances deprives the shareholders of the opportunity to exercise their powers in general meeting to call the directors to book and to ensure that errors in management are corrected, the shareholders ought to be entitled to a remedy.
His decision was, following O’Connor LJ’s dissent in the Court of Appeal, that no duty was owed at all, either to existing shareholders or to future investors by a negligent auditor. House of Lords cases English tort case law in case law in British law.
The third requirement to be met before a duty of care will be held to be owed by A to B is that the court should find it just and reasonable to impose such a duty: But for outside investors, a relationship of proximity would be “tenuous” at best, and that it would certainly not be “fair, just and reasonable”.
But on this part of the case your Lordships were much pressed with the argument that such a loss might occur by a negligent undervaluation of the company’s assets in the auditor’s report relied on by the individual shareholder in deciding to sell his shares at an undervalue.
Heyman60 A. Sometimes it is regarded as significant that the parties’ relationship is “equivalent to contract” see the Hedley Byrne caseat p. Lord Bridge then proceeded to analyse the particular facts of the case based upon principles of proximity and relationship. It is one upon which all common law jurisdictions can learn much from each other; because, apart from exceptional cases, no sensible distinction can be drawn in this respect between the various countries and the social conditions existing in them.
Caparo Industries v Dickman
The question in Caparo was the scope of the assumption of responsibility, and what the limits of liability ought to be. But in practice no problem arises in this regard since the interest of the shareholders in the proper management of the company’s affairs is indistinguishable from the interest of the company itself and any loss suffered by the shareholders, e. I believe this argument to be fallacious. The requirement cannot, perhaps, be better put than it was by Weintraub C.
The many decided cases on this subject, if providing no simple ready-made solution to the question whether or not a duty of care exists, do indicate the requirements to be satisfied before a duty is found. The share price fell again. Views Read Edit View history.
Caparo Industries v Dickman
The first is foreseeability. Applying those principles, the defendants owed no duty of care to potential investors in the indsutries who might acquire shares in the company on the basis of the audited accounts.
Assuming for the purpose of the argument that the relationship between the auditor of a company and individual shareholders is of sufficient proximity to give rise to a duty of care, I do not understand how the scope of that duty can possibly extend beyond the protection of any individual shareholder from losses in the value of the dickmxn which he holds.
I believe it is this last distinction which is of critical importance and which demonstrates the unsoundness of the conclusion reached by the majority of the Court of Appeal. Lord Bridge of Harwich who delivered the leading judgment restated the so-called “Caparo test” which Bingham LJ had formulated below.
But the crucial question concerns the extent of the shareholder’s interest which the auditor has a duty to protect. It may very well be that in tortious claims based on negligent misstatement these notions are particularly apposite. In order for a duty of care to arise in negligence:. It did not extend to the provision of information to assist shareholders in the making of decisions as to future investment in the company.
Retrieved from ” https: In June the annual accounts, which were done with the help of the accountant Dickman, were issued to the shareholders, which now included Caparo.
The argument then runs thus. Previous cases on negligent misstatements had fallen under the principle of Hedley Byrne v Heller.